(Cybercrime Prevention Law): A severely underestimated legislative earthquake #Web3

On January 31, 2026, against the backdrop of severe market fluctuations due to liquidity pressures, the Ministry of Public Security, together with relevant departments, officially solicited public opinions on the (Cybercrime Prevention Law (Draft for Public Comments)).

In stark contrast to the market's violent reaction, public opinion is unusually quiet. Searching for 'Cybercrime Prevention Law' on X (Twitter) yields very few discussions. Most practitioners' intuitive response is:

Is it another extension of a ministry document?

"After all, it has already been banned, can it be stricter?"

This is an extremely dangerous misjudgment.

Upgrading from 'ministerial notice' to 'national law' means that the regulatory logic has officially entered the stage of precise criminal governance from administrative risk prevention. Biteye believes this is likely the most far-reaching legislation affecting the Web3 ecosystem in mainland China in recent years.

No longer talking about 'financial risk,' but directly cutting into three major life gates

After reading this 68-article draft, it is clear that it almost no longer repeatedly discusses macro concepts such as 'illegal fundraising' and 'systemic financial risk,' but instead cuts directly into the three core aspects of cryptocurrency operations like a scalpel:

  • #OTC funding flow

  • Technical development and service support

  • Public chain nodes and infrastructure operation

This means that regulation no longer attempts to 'block an industry,' but begins to dismantle key nodes in the criminal chain point by point.

I. Compared to previous ministerial documents, it has shattered three 'safety floors'

1️⃣ OTC dilemma: redefine 'knowledge'

In the past, the most common defense logic for OTC merchants (U merchants) was:

"I am just trading and do not know the source of the other party's funds."

In judicial practice, such cases are often classified as illegal operations or aiding and abetting crimes, with a relatively high threshold for recognition.

But in Draft Article 26, Clause 3, the legislative expression has undergone substantial changes:

"No individual or organization shall knowingly engage in the following fund transfer, payment settlement, and other behaviors with funds obtained from illegal activities of others... providing fund transfer services to others using virtual currencies and other network virtual properties."

On the surface, 'knowledge' is still retained, but in reality enforcement, the presumption of 'knowledge' has been significantly expanded:

  • Transaction prices are significantly abnormal

  • Using encrypted communication tools to deliberately evade regulation

  • Failure to perform substantial and strict KYC / AML

Can all be identified as 'should know'.

This means that,#USDT #USDC and virtual currencies are officially included in the regulatory scope of network crime fund transfers.
For the OTC industry, the question is no longer 'whether profits have declined,' but:

Whether compliance costs have become unsustainable.

2️⃣ Technology is no longer neutral: long-arm jurisdiction and 'support equals complicity'

The cryptocurrency circle has long believed a saying: 'Code is law, technology is innocent.'

But Draft Articles 19 and 31 almost directly deny this concept:

"No one shall knowingly provide assistance and support for illegal activities through the internet, such as development, operation and maintenance, advertising promotion, and application packaging for others..."

What is more critical is Article 2 regarding long-arm jurisdiction:

"Citizens of the People's Republic of China residing abroad, as well as foreign organizations and individuals providing services to users in the People's Republic of China... shall be held legally accountable according to law."

  • Many provisions in the draft first point to administrative responsibility (rectification, fines, confiscation of illegal gains)

  • Only when the circumstances are serious (such as involving huge amounts of fraud funds, deeply participating in operations) will it rise to criminal responsibility

  • Long-arm jurisdiction in practice involves a 'cost-benefit' trade-off; unless it's a major case or involves national security, cross-border accountability is not the default option

But it should be noted: "Not necessarily catch you" ≠ "You are safe."

3️⃣ Public chain governance: a one-way challenge to decentralization

Draft Article 40, Item 9, clearly requires blockchain service providers:

Must have the ability to monitor, block, and dispose of illegal information and payment settlement behaviors.

For technical personnel, this is an almost unsolvable problem.

A truly Permissionless Blockchain does not have single point blocking capabilities in its architecture. This effectively forces domestic Web3 projects to choose one of two options:

  • becoming a verifiable, intervenable 'alliance chain'

  • or inherently illegal due to failure to fulfill blocking obligations

Decentralization has been challenged institutionally for the first time here.

II. Historical Coordinates: From '9·4' to '2·1'

If you extend the timeline, China's crypto regulation has roughly gone through three stages:

  • 2013 / 2017 (9·4) | Announcement | Defensive Phase
    The goal is to prevent risks to ordinary investors and prohibit ICOs

  • 2021 (9·24) | Notification | Withdrawal Phase
    Focusing on cracking down on illegal financial activities, zeroing out mining

  • 2026 (Cybercrime Prevention Law) | Law | Governance Phase
    The goal shiftsto network crimes related to Web3 itself

In the first two phases, the leading departments were the central bank and the National Development and Reform Commission, focusing on 'money' and 'affairs';
This time, the lead is the Ministry of Public Security, focusing on—'crime' and 'people'.

"Whether it is crypto-driven crime (money laundering, fraud) or crypto-native crime (hacking, Rug Pull), both have shown a high frequency in recent years. This legislation is essentially an inevitable upgrade of regulation from administrative prohibition to criminal regulation."

2026 is a year of rule rebuilding

The crash on February 1 might just be a liquidity shock.
The K-line will recover, and emotions will reverse.

But when the legal scalpel begins to precisely cut into the code, nodes, and funding paths,
Compliance is no longer an option, but a prerequisite for survival.

Practical advice from lawyer Sharon is also very direct:

  • Do not view 'technological neutrality' as a legal exemption

  • Strictly implement #kyc and anti-money laundering mechanisms

  • Substantially block domestic IPs and users

  • Avoid participating in high-risk projects' token market making and commission promotions

In this new phase, for practitioners and investors in the mainland:

"Compliance" has already become a red line between life and death.